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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Carborundum Universal (CU)
Others
Outlook: Cloudy with a hint of rain. Given the concerns over global economy and likely
negative implications for the manufacturing sector (evident in the reducing PMI
indicators for the various economies), we are turning cautious. CUMI’s volume growth
depends on the growth in the manufacturing sector. Hence, in our view, the company
could find it difficult to grow volumes in the unfolding economic scenario. Since our
initiation in April 2011, the stock has appreciated by 18%. We have adjusted our
earning estimates for FY2012E and are downgrading the stock to REDUCE (earlier BUY)
with a target price of Rs290 (earlier Rs300) at 14X FY2013E EPS.
Global manufacturing sector is slowing down
Global manufacturing sector is slowing down as is evident in the PMI indicators for the major
economic regions. Even before the current sovereign debt crisis spread in Europe, the PMI
indicators for major economic regions had declined to ~50, which implies close to nil growth in
the manufacturing activity in the respective economies. Given that the economic scenario has only
worsened from there, there could be a decline in the manufacturing activity in these economies
going forward. In light of the fact that volumes in abrasives, ceramics and electro-mineral business
are directly linked to the global manufacturing activity, it could be difficult for the company to
grow volumes in the current economic scenario.
Large proportion of company’s revenues are linked to markets outside India
As of FY2011, almost 45% of revenues of the company came from regions outside India with
Europe constituting ~25% of the consolidated revenues. Also, growth in exports constituted
almost 30% of the overall growth in the standalone revenues in FY2011. In the past five years,
exports have grown (organic; standalone) from Rs337 mn in FY2005 to Rs1.94 bn in FY2011.
Given the large dependence on export revenues, the company could disappoint on growth
expectations in the medium term in light of the slowing global growth rates.
We are turning cautious; downgrading to REDUCE with a target price of Rs290
Even though we are positive on the long-term prospects of the company given the ability of the
company to successfully enter into new high value-added product segments, we are taking a
cautious view. We have changed our estimates of sales and PAT for FY2012E from Rs18.4 bn and
Rs1.68 bn to Rs19.2 bn and Rs1.76 bn, respectively to take into account above estimate results in
1QFY12. We have reduced our estimates for FY2013E and FY2014E and are downgrading the
stock to REDUCE with a target price of Rs290 (earlier Rs300) at 14X FY2013E EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Carborundum Universal (CU)
Others
Outlook: Cloudy with a hint of rain. Given the concerns over global economy and likely
negative implications for the manufacturing sector (evident in the reducing PMI
indicators for the various economies), we are turning cautious. CUMI’s volume growth
depends on the growth in the manufacturing sector. Hence, in our view, the company
could find it difficult to grow volumes in the unfolding economic scenario. Since our
initiation in April 2011, the stock has appreciated by 18%. We have adjusted our
earning estimates for FY2012E and are downgrading the stock to REDUCE (earlier BUY)
with a target price of Rs290 (earlier Rs300) at 14X FY2013E EPS.
Global manufacturing sector is slowing down
Global manufacturing sector is slowing down as is evident in the PMI indicators for the major
economic regions. Even before the current sovereign debt crisis spread in Europe, the PMI
indicators for major economic regions had declined to ~50, which implies close to nil growth in
the manufacturing activity in the respective economies. Given that the economic scenario has only
worsened from there, there could be a decline in the manufacturing activity in these economies
going forward. In light of the fact that volumes in abrasives, ceramics and electro-mineral business
are directly linked to the global manufacturing activity, it could be difficult for the company to
grow volumes in the current economic scenario.
Large proportion of company’s revenues are linked to markets outside India
As of FY2011, almost 45% of revenues of the company came from regions outside India with
Europe constituting ~25% of the consolidated revenues. Also, growth in exports constituted
almost 30% of the overall growth in the standalone revenues in FY2011. In the past five years,
exports have grown (organic; standalone) from Rs337 mn in FY2005 to Rs1.94 bn in FY2011.
Given the large dependence on export revenues, the company could disappoint on growth
expectations in the medium term in light of the slowing global growth rates.
We are turning cautious; downgrading to REDUCE with a target price of Rs290
Even though we are positive on the long-term prospects of the company given the ability of the
company to successfully enter into new high value-added product segments, we are taking a
cautious view. We have changed our estimates of sales and PAT for FY2012E from Rs18.4 bn and
Rs1.68 bn to Rs19.2 bn and Rs1.76 bn, respectively to take into account above estimate results in
1QFY12. We have reduced our estimates for FY2013E and FY2014E and are downgrading the
stock to REDUCE with a target price of Rs290 (earlier Rs300) at 14X FY2013E EPS.
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